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Limited Liability Companies (LLC's)

1. What is a Limited Liability Company (LLC)?
2. How is a Limited Liability Company (LLC) structured?
3. What are some of the advantages of a Limited Liability Company (LLC)?
4. What are some of the disadvantages of a Limited Liability Company (LLC)?
5. Do I need an attorney to form a Limited Liability Company (LLC)?
6. How many members can a Limited Liability Company (LLC) have?
7. How is a Limited Liability Company (LLC) managed?
8. What is a Registered Agent and must I have one?
9. What is a Limited Liability Company (LLC) kit?
10. What is a Federal Tax Identification Number (EIN)?
11. How do I begin the process of forming my Limited Liability Company (LLC)?

1. What is a Limited Liability Company (LLC)?

A Limited Liability Company (LLC) is a business entity formed by filing Articles of Organization with the appropriate state. An operating agreement does not have to be filed but it is an important document that should set forth the owners' (members') rights and responsibilities, their share of ownership, their voting rights, their shares of profits and losses and their distribution rights, all of which can be different and without regard to their capital contribution.

As the name implies, a Limited Liability Company (LLC) provides the same limited liability for its members as a corporation does for its shareholders. Members are not liable for the debts, obligations and liabilities incurred by the business or for liability stemming from possible legal action. Normally, members cannot lose more than the amount they invested in the LLC. If the LLC goes bankrupt, the members will not be liable for its debts. Should someone sue the LLC and it is found liable, they can take the LLC's property to satisfy the judgment but if that property does not satisfy the judgment, they will not be able to take a member's personal assets, i.e. home, car, a bank account. Protection of members' personal assets is a major advantage of a Limited Liability Company (LLC). An exception to a member's limited liability happens when the corporation has recklessly harmed people or has been used to perpetuate a fraud.

A Limited Liability Company (LLC) can choose to be taxed as a corporation or choose the pass through tax structure of an S Corporation so, depending upon tax method selected, an LLC is just like a corporation but without the formal structure and often cumbersome requirements.

Since an LLC offers the same advantages as a corporation while being much more flexible, and is easier and less complicated to operate than a corporation, it has become an obvious best choice for many small businesses.

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2. How is a Limited Liability Company (LLC) structured?

A Limited Liability Company (LLC) is owned by its members. An operating agreement sets forth the members' rights and responsibilities. Unlike shareholders of a corporation, LLC members' share of ownership, voting rights, their shares of profits and losses, and their distribution rights, do not have to be based on the amount of their contribution to the business. Normally, one or more managers make management decisions and “run the business” for the inactive members.

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3. What are some of the Advantages of a Limited Liability Company (LLC)?

  • Most states permit LLC's to also file an operating agreement that allows for great flexibility in setting forth the relationships between its members and its internal operation.
  • An LLC can be managed by its members or by managers.
  • Legally, an LLC is a separate entity from its members and managers.
  • Members and managers normally enjoy the same limited liability as do the shareholders, directors and officers of a corporation and can lose no more than the amount of their contribution to the LLC.
  • Protection of members' personal assets is a major advantage of an LLC.
  • An LLC can generally conduct any lawful business.
  • Most states permit 1 member LLC's and none limits the number of members.
  • Corporations, partnerships and trusts can be members of an LLC.
  • Most states permit the free transferability of interests in LLC's.
  • Most state statutes do not require any meetings of LLC members.
  • There are fewer required formal reports and less paperwork for LLC's than for corporations.
  • An LLC can choose to be taxed as a corporation or choose the pass through tax structure of an S Corporation.
  • Members of an LLC can be divided into as many classes as desired, without regard to their capital contribution and each class can have different voting rights, different shares of profits and losses, and different distribution rights.
  • Employees would frequently rather work for an LLC than for a sole proprietorship or partnership.
  • The general public normally thinks of LLC's as being more substantial than sole proprietorships and partnerships.

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4. What are some of the disadvantages of a Limited Liability Company (LLC)?

  • Official documents, typically called a Certificate of Formation or Articles of Organization, must be filed with the appropriate state in order to form a C Corporation
  • State filing fees must be paid.
  • LLC's require more paperwork and documentation than do sole proprietorships and partnership.

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5. Do I need an Attorney to form a Limited Liability Company (LLC)?

No. Formation of a Limited Liability Company (LLC) is primarily a clerical process and while it is relatively complex, anyone who understands and follows the required procedures can form an LLC. We provide this formation service for substantially less than the amount charged by most attorneys. We can and do guarantee the accurate formation of a corporation but our service is not intended to serve as a substitute for professional advice. Since individual situations and state statutes vary, you may need to seek more detailed advice from your local professionals who are familiar with your specific requirements as well as those of the state in question. Since taxes are a prime consideration, it is important to consult with your accountant or tax advisor.

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6. How many members can a Limited Liability Company (LLC) have?

Most states permit 1 member LLC's and none limits the number of members.

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7. How is a Limited Liability Company (LLC) managed?

A Limited Liability Partnership (LLC) can be managed by its members or by designated managers.

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8. What is a Registered Agent and must I have one?

Yes, all Limited Liability Companies (LLC's) are required to have a registered agent. A registered agent is a person registered with the state of incorporation who is authorized to receive legal papers on behalf of the corporation. They are normally listed with the Secretary of State and they must be located in that state and available during normal business hours. While anyone can serve as a corporation's registered agent, most choose to have a professional registered agent since it is extremely important that all legal documents, tax documents, annual reports, and correspondence with the state and regulatory agencies be handled promptly and efficiently.

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9. What is a Limited Liability Company (LLC) Kit?

A Limited Liability Company (LLC) Kit consists of a number of things that will help you comply with any state rules and regulations regarding documentation and record keeping. While the strict rules and regulations states apply to corporations do not apply to limited liability companies (LLC's), you will be well advised to hold periodic meetings and maintain accurate records. Membership certificates must be issued to LLC members and a record of the owners must be maintained. A metal seal is used to make an official impression identifying the company on official documents.

Click here to see what is included in the Limited Liability Company Kit supplied by MaxFilings.

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10. What is a Federal Tax Identification Number (EIN)?

Every Limited Liability Company (LLC) is required to have a Federal Tax Identification Number, also known as an employer identification number (EIN), which is used to identify the business in any number of transactions. An EIN is obtained by submitting IRS Form SS-4 to the Internal Revenue Service. Your EIN will be needed to open a bank account. We can prepare this form for you and send it to you to sign (required) and mail to the Internal Revenue Service in the pre-addressed envelope we provide.

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11. How do I begin the process of forming my Limited Liability Company (LLC)?

It couldn't be easier. Start now by beginning to enter the information required to prepare and file the articles of organization in the state you select.

Don't have all the information now? Afraid you won't have time to finish?

Don't worry. You can work on it now, save what you enter under your user name, and come back later to add or change information.

You are under no obligation – you don't even have to use our service.

You don't start the formation process unless and until you're ready – only then do you pay.

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